DBRS Confirms Landesbank Berlin AG at A (high); Trend Stable

DBRS Ratings Limited (DBRS) has today confirmed the ratings for Landesbank Berlin AG (LBB AG), including its Issuer & Senior Long-Term Debt rating of A (high), its Subordinated Debt rating of A (low) and its Short-Term Instruments rating of R-1 (middle). The trend on all ratings is Stable.

The ratings for Landesbank Berlin AG (LBB AG) are based on its full ownership by the German savings banks and on DBRS’s floor rating for members of the joint liability scheme of Sparkassen-Finanzgruppe. In DBRS’s view, LBB AG has strategic importance for the savings banks, which is underpinned by the Bank’s strong retail and regional franchise in Berlin and Brandenburg, as well as the further progress made in transforming LBB AG into a savings bank under the Berliner Sparkasse name. The Issuer & Senior Long-Term Debt rating of A (high) and the Short-Term Instruments rating of R-1 (middle) consider DBRS’s view that, in a stress scenario, support would be made available to LBB AG from its ultimate owners, the German savings banks, and from the joint liability scheme of Sparkassen-Finanzgruppe.

DBRS has maintained the intrinsic assessment (IA) of BBB (high) for LBB AG, which considers the stand-alone financial profile of the Bank which forms the core subsidiary of parent Landesbank Berlin Holding AG (the Group). The IA also reflects the Bank’s strong regional banking franchise and the progress made towards restructuring the Bank, including the planned spin-off of BerlinHyp into a separate Group subsidiary which will no longer be part of LBB AG. For DBRS, the future business model should help to support greater stability in earnings as exposure to more volatile capital markets and real estate risk is being reduced. The Bank posted a net profit of EUR 244 million for 1H14, but additional charges and adjustments related to the restructuring are expected to materially erode earnings for the full year.

LBB’s regional deposit franchise will increase in relative importance as the Bank should be able to more fully fund itself via retail and Savings Bank deposits. Nonetheless, wholesale funding via more stable covered bonds (Pfandbriefe) will continue to support the real estate activities in and around the Berlin area which will remain with Berliner Sparkasse. Overall, LBB has enjoyed access to a diverse menu of funding instruments, including medium-term notes, structured notes, commercial paper and promissory note loans. The Group has maintained access to wholesale funding throughout the 2007 to 2014 period without the need for government guarantees.

LBB is owned 100% by the Sparkassen Finanzgruppe via an economic vehicle, Erwerbsgesellschaft der S-Finanzgruppe mbH & Co. KG (S-Erwerbsgesellschaft). S-Erwerbsgesellschaft is also the entity through which LBB reports its capital ratios to the German regulator and which is used by the EBA for stress testing purposes. Within this framework, LBB passed the ECB stress test with a 2016 CET 1 at 6.83% under the stress scenario. The aggregated adjustment of the AQR reached 8 bps. Going forward, Berliner Sparkasse targets a minimum Core Tier 1 ratio above 12% with future earnings expected to be retained for capital strengthening.

The trend on all ratings is Stable, reflecting the Stable trend on the floor rating for members of the joint liability scheme of Sparkassen-Finanzgruppe. Accordingly, a weakening of the intrinsic rating would not result in a concurrent downgrade of the final rating, assuming DBRS’s view on the willingness and availability of support remain unchanged.

Notes:
All figures in Euros (EUR) unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2014). Other applicable methodologies include the DBRS Criteria: Support Assessment for Banks and Banking Organisations (January 2014) and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (December 2013).These can be found can be found at: http://www.dbrs.com/about/methodologies.

The sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance.

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Peter Burbank
Rating Committee Chair: Roger Lister
Initial Rating Date: January 22, 2007
Most Recent Rating Update: October 25, 2013

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For additional information on this rating, please refer to the linking document located at: http://www.dbrs.com/research/236983/banks-and-banking-organisations-linking-document.pdf

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